Debt consolidation and bankruptcy may be the last two things you want to worry about during the holidays, but if you have unmanageable debt come December, you may not have a choice. At Espy, Metcalf & Espy, PC At Law, in Dothan, Alabama, our bankruptcy attorneys understand that while you may not want to deal with a bankruptcy now, it may be in your best interests to do so. There are advantages to filing for Chapter 13 or Chapter 7 bankruptcy now rather than waiting until after the New Year.
The Two Types Of Bankruptcy
There are two common types of bankruptcy: Chapter 13 bankruptcy and Chapter 7 bankruptcy. Most individuals hope to qualify for Chapter 7 because this route essentially eliminates most unsecured debt, where Chapter 13 consolidates unsecured debt and can modify certain types of secured debt allowing for a more efficient means to pay off such debts. If you’re approved for a Chapter 7 bankruptcy, you can finish the process within months; however, if you’re only eligible for Chapter 13, you’ll probably spend the next three to five years paying back your loans.
Which chapter you qualify for depends on your income and assets. Upon filing, you must undergo a “means test.” The means test is used to determine whether or not you have the capital to pay back some or all of your debt over an extended period of time. If your income is more than the median amount for your family size and relevant state—which is $49,163 for a two-person household in Alabama—you may be forced into a Chapter 13 bankruptcy; however, if you fall at or below the median income level, you will likely be eligible for a Chapter 7.
How Timing Affects The Means Test
Unfortunately, income can mean any money that you bring home in the six months prior to the month you file for bankruptcy—including year-end and holiday bonuses. For many individuals, that year-end bonus can tip them right over the median income threshold, thereby possibly disqualifying them for a Chapter 7 bankruptcy.
Fortunately, because of bankruptcy’s timing laws, any income that you receive during the month you filed is not counted towards the means test. Only income received for the six months prior to your filing is considered. So for instance, if you file for bankruptcy on Dec. 31st of this year, the means test would only take into consideration any money that you received from June 1st through Nov. 30th of this year. Any income or bonuses that you receive in the month of December will not count towards the means test. For many people, this could mean the difference between making $48,000 and $50,000—thereby determining the difference between qualifying for Chapter 7 bankruptcy or being forced into Chapter 13.
At Espy, Metcalf & Espy, PC At Law, our bankruptcy attorneys have been helping clients in the Dothan area with bankruptcy and social security issues for over 40 years. If you’re in financial trouble and need to explore your options, contact our law firm at (334) 793-6288, or visit us online to learn more.